Post on 26-Feb-2023
A Comparative Perspective on Informal Governance
in Germany and Russia
Professor Dr. Eberhard Bohne, M. A.
Katerina Potapova, M. A., Mag. rer. publ. (Research Associate)
German University of Administrative Sciences Speyer
Freiherr-vom-Stein-Str. 2, 67346 Speyer, Germany
Paper presented at the International Academic Conference “Improving the Effectiveness of Public Services”, Higher School of Economics, Moscow, Russia /
Association for Public Policy Analysis & Management, Moscow, June 28-29, 2011
Abstract
Regulators have different formal governance instruments at their disposal, such as laws, statutes, orders, contracts etc. But to meet their formal tasks regulators also apply informal instruments. These instruments are legally non-binding, display an exchange pattern, and replace or supplement formal instruments.
Two cases from Germany and Russia, representing typical informal agreements between government and private actors, are described and analyzed. Concepts of formal and informal organizations, and of structural-functional systems theory are used to explain the conclusion and effectiveness of informal agreements.
A major factor to account for the use and effects of informal governance are informal principles or paradigms concerning the relationship between state and society which are based on traditions and on general beliefs and attitudes. The paradigm of “the ensuring state” prevails in Germany while in Russia a paradigm reflects the relationship between government and private actors which we call “the paradigm of providing state plus providing capitalism”. The two paradigms and their effects on informal governance are analyzed and compared on the basis of the two case studies.
Keywords: Informal governance; informal agreements; formal and informal organizations; structural-functional systems theory; state paradigms; ensuring state; providing state plus providing capitalism; Germany; Russia
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Content
1. Introduction........................................................................................................................3 2. Informal Governance in Germany .....................................................................................5
2.1 Recycling Agreement between Government and Industries......................................5 2.1.1 Decision background .........................................................................................5 2.1.2 Actors.................................................................................................................6 2.1.3 Content...............................................................................................................6 2.1.4 Form...................................................................................................................7 2.1.5 Results................................................................................................................7
2.2 Theoretical Framework..............................................................................................8 2.2.1 Theory of formal and informal organizations....................................................8
2.2.1.1 Formal organization. ......................................................................................8 2.2.1.2 Informal organization.....................................................................................8
2.2.2 Concepts of structural-functional systems theory............................................10 2.2.2.1 Open social systems.....................................................................................10 2.2.2.2 Systems problems and functions..................................................................10
2.3 Explaining the Recycling Agreement ......................................................................11 2.3.1 Informal characteristics....................................................................................11 2.3.2 Factors triggering the conclusion of the agreement.........................................12 2.3.3 Factors causing the failure of the agreement ...................................................13 2.3.4 Conclusions......................................................................................................13
3. Informal Governance in Russia .......................................................................................14 3.1 Agreements of the governor of Kemerovo Region with industries on social-economic partnership and with federal agencies on administrative cooperation ................14
3.1.1 Decision background .......................................................................................14 3.1.2 Actors...............................................................................................................16 3.1.3 Content.............................................................................................................17 3.1.4 Form.................................................................................................................19 3.1.5 Results..............................................................................................................19
3.2 Explaining the Kemerovo Agreements ....................................................................20 3.2.1 Informal characteristics....................................................................................20 3.2.2 Agreement on social-economic partnership.....................................................21
3.2.2.1 Interests. .......................................................................................................21 3.2.2.2 Providing state plus providing capitalism....................................................21 3.2.2.3 Systems functions. .......................................................................................23
3.2.3 Agreement on administrative cooperation .......................................................24 3.2.3.1 Interests. .......................................................................................................24 3.2.3.2 Systems functions. .......................................................................................25
3.2.4 Conclusions......................................................................................................25 4. Comparing Informal Governance in Germany and Russia..............................................26 5. Bibliography ....................................................................................................................29
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1. Introduction
The modern state has often been referred to as “regulatory state”. There are different
definitions of this phenomenon. The basic features of the regulatory state are the idea of the
market economy based on competition among companies, where the state is “steering” the
economy rather than “rowing” by itself. Independent regulatory agencies are established to
oversee the regulated companies. The USA and Great Britain are the most prominent
examples of such modern regulatory states. The European Union also displays features of a
regulatory state (Yeung 2010, 71 ff.).
Germany has often been contrasted to regulatory states like USA or Great Britain. Its
regulatory culture is based upon different principles such as pursuit of common welfare over
market competition, division of responsibility between state and private actors through
enhancing self-regulatory capacities of society. It was labeled an “ensuring state” with
“shared responsibility” between state and society for the common good (Schuppert 2003, 55;
Bohne/Bauer 2011, 295 f.). The state itself does not deliver public services. The state only
intervenes and provides services when private actors fail to deliver them.
In the regulatory state discussion which typically concentrates on western democratic
countries with strong legal traditions, Russia is a rather unknown location. Liberalization and
free market economy were the ideals of Yeltsin’s presidency in the 1990s. Under Putin,
Russia continued the liberalization policy (Vasil’eva et al. 2011, 180 f.). Since 2003 however
some “strategic” areas were re-nationalized (Pappè/Galuchina 2009, 159 ff.).
All western-type regulatory states are based on a market economy, and share liberal
values. But there are a range of practical problems besides this normative picture. The typical
problems are the following ones:
1. Regulators need sufficient information to make good regulations: “Information is
the lifeblood of regulatory policy.” (Coglianese et al. 2004, 1).
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2. Setting and implementation of policies can be highly cost-intensive.
3. There are usually enforcement deficits.
Such problems lead regulators to pass even more and stronger regulations in order to
be more effective. Thus, a paradox situation emerges. On the one hand, the state attempts to
create a strong market economy based on fair competition and protected individual rights. On
the other hand, it believes that it needs to set more and more detailed regulations. As a result
the regulatory framework gets more complex and extensive. Companies consider this
situation increasingly as a burden because costs increase. Companies complain of
overregulation and call for deregulation.
Under such dissatisfying circumstances for all parties alternative governance practices
occur. As a reaction to the outlined problems of regulation, these practices often emerge due
to the urgent needs of agencies, and are often of a pragmatic nature. Agencies apply
alternative governance instruments instead of formal rules.
This practice is called informal governance as an alternative mode to command and
control instruments like formal laws, directives, statutes etc. In Russia, informal governance
has been mainly discussed as illegal and corruptive behavior (cf. Gel’man 2010, 4 f.). Only
few authors consider informal practices as a ubiquitous phenomenon in organizations and
without any normative focus (Barsukova/Karačarovskij 2004, 99 ff.).
Here, we use the term “informal” as an empirical-analytical concept which is well
known in organization theory (Barnard 1938/1976, 114 ff.; Scott/Davis 2007, 62 f.).
In this article, we will first describe two examples of informal governance in Germany
and Russia. We will show that one of these cases was effective and the other one failed. We
will attempt to outline the factors which were probably responsible for their
effectiveness/ineffectiveness. Then we will try to draw some generalizations from the
comparison between the two cases. Are there distinctive characteristics of informal
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governance in both countries? Are there any general variables which are critical for
effectiveness or ineffectiveness of the informal governance? Why do agencies and companies
use informal governance strategies? How can it be explained? Finally, what kind of typical
problems may arise?
2. Informal Governance in Germany
2.1 Recycling Agreement between Government and Industries
2.1.1 Decision background
Packaging waste makes for some 50 % of all household wastes. Beverage containers
represent a considerable share of packaging wastes. A way to reduce the amount of
packaging wastes is the establishment of multi-cycling systems for refillable beverage
containers. These systems have a long tradition in Germany for beer and carbonated
beverages, and covered between 80-90 % of these beverages in the 1970s. However, there is
a trend towards non-refillable beverage containers which increases the amount of packaging
wastes, and causes air and water pollution. The Federal Government was authorized under
the Federal Waste Disposal Act to regulate the type and quantity of non-refillable containers
on the market.
The beverage and container industry had an interest to prevent far-reaching reductions
of non-refillable containers which represented a profitable market for the producers of
beverages and beverage containers. The government wanted to prevent further erosion of the
existing multi-cycling system for refillable containers.
In 1977 and 1987, the beverage and container industries and the Federal Environment
Ministry reached two voluntary recycling agreements (henceforth recycling agreement).1
1 For details see Hartkopf/Bohne (1983, 451 ff.), Knebel et al. (1999, 426 ff.).
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2.1.2 Actors
Figure 1 shows the actors of the recycling agreement.
Parties to the agreement were the Federal Environment Ministry and 12 federal and
regional associations of industries whose members were hundreds of producers of beer, non-
alcoholic beverages and beverage containers. The interests of these producers were very
diverse. Regional companies were more interested in maintaining multi-cycling systems for
refillable containers, while companies operating nation- or EU-wide considered non-refillable
containers more profitable than multi-cycling systems.
Environmental and consumer organizations were not involved.
Figure 1: Actors of Recycling Agreement
2.1.3 Content
Industry associations promised inter alia to make their members maintain the existing
multi-cycling systems of refillable containers for beer and carbonated beverages, and to
M1-n: Member companies of industry association
Ministry
Industry
Associations
M1
M2
M3
M4
Mn Internal coordination within industry association of promised, environmentally sound actions
Promise of environmentally sound actions by industries in exchange for abandonment by government of formal rulemaking
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report annually on the implementation of measures for the stabilization of the multi-cycling
system.
The ministry promised to refrain for the time being from introducing mandatory
deposit systems and quantitative restrictions for non-refillable beverage containers.
The agreement was not legally binding. Both sides did not want to enter contractual
obligations. The ministry kept the option to issue regulations any time it deemed politically
necessary. Industries wanted to preserve their flexibility to meet possible market demands for
beverages in non-refillable containers. Consequently, the agreement could not be legally
enforced. Its breach triggered no legal sanctions.
2.1.4 Form
The voluntary agreement was the results of intensive negotiations. Industries made
their promises orally at public hearings. These promises were recorded in the minutes of the
hearings. The Environment Ministry also informed the public on the agreements through
numerous press releases and announced its intention to refrain from regulations for the time
being.
2.1.5 Results
Industries did not keep their promises. The multi-cycling system for refillable
beverage containers further declined. Main causes for the failure of the agreement are said to
be the large number of producers of beverages and beverage containers with conflicting
interests. Multi-cycling systems of refillable beverage containers are primarily regional, and
meet the interests of small and medium enterprises serving regional markets. For large
companies operating nation- and EU-wide, including foreign companies the multi-cycling
systems are unprofitable.
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2.2 Theoretical Framework
2.2.1 Theory of formal and informal organizations
2.2.1.1 Formal organization.
The public and private actors of the recycling agreement are formal organizations.
The concept of formal organization (Gross 1968, 198 ff.; Scott/Davis 2007, 22 f., 37 ff.)
depicts collectivities which
• have organizational objectives, structures and procedures laid down in written
documents such as company agreements, contracts, bylaws, statutes, regulations etc.,
• consist of individual and/or collective members,
• coordinate the activities of members through formal structures and procedures in
order to achieve their formal objectives,
• seek to maintain their organizational patterns and to ensure their organizational
survival, and
• are established to exist for some time (thus excluding spontaneous ad-hoc
collectivities).
2.2.1.2 Informal organization.
The concept of informal organization (Gross 1968, 238 ff.; Scott/Davis 2007, 23 f, 62
ff.) denotes the structures, procedures, rules and interactions of organization members which
are not captured by formal organizational objectives, structures, and procedures and which
constitute alternatives, modifications, or supplements to the formalizations of an
organization.
There is a consensus in organization theory that informal organizations are the
inevitable consequence of organizational formalizations (Barnard [1938] 1976, 114 ff.; Gross
1968, 239 ff.; Scott/Davis 2007, 62 f.). This is because formal structures, procedures and
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rules of organizations often prevent certain organizational needs to be met while these needs
can be accommodated through informal structures, procedures and informal rules (Luhmann
1995, 285).
Furthermore, the elements of informal organizations allow organization members to
pursue their individual objectives even if they are contrary to formal organizational
objectives.
Finally, informal rules like conventions and codes of behavior, customs and traditions
reduce complexity and contribute to the stability of an organization even if formal structures
and procedures are changed (North 1990, 4 ff.).
There is no generally accepted definition of informal organization. However, the
characteristics used to describe informal organizations can be summarized in three categories.
Informal structures, procedures and rules
• are usually not documented in writing, legally non-binding, and cannot be formally
sanctioned in case of violations,
• reflect an exchange pattern, and
• represent an alternative, modification, or supplement to formal structures, procedures
and rules.
The concept of informal organization has been developed to describe and explain
intra-organizational interactions. It can also be applied to inter-organizational relations
because these relations tend to be highly formalized by contracts, bylaws, statutes and
regulations. The application of the concept of informal organization to the recycling
agreement falls into this category.
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2.2.2 Concepts of structural-functional systems theory
2.2.2.1 Open social systems.
Formal organizations can be viewed as open social systems because they interact with
their environment, and their self-maintenance is based on these interactions (Katz/Kahn 1978,
20 ff.; Scott/Davis 2007, 95). Groups of formal organizations constitute open social systems
if the former are interconnected by interactions with the same meaning as reference point like
the recycling issue of the interaction system shown in Figure 1. These interaction systems are
formalized to the extent that interactions are governed by formal rules based on contracts,
bylaws, regulations etc. In the case of the interaction system in Figure 1 there was the Federal
Waste Management Act which contained provisions for the maintenance of recycling
systems.
2.2.2.2 Systems problems and functions.
Everyone who has worked in a formal organization knows that organizations do not
only seek to achieve their formal organizational objectives but also have to cope with
problems of self-maintenance. These problems include:
• avoiding and resolving internal and external conflicts,
• allocating scarce resources,
• coping with information deficits,
• handling demands from the environment on the organization.
These problems are not unique to formal organizations but are characteristics of any
open social system.
Structural-functional systems theory analyzes (Selznick 1948, 28 ff.; Burrell/Morgan
1979, 152 ff.; Scott/Davis 2007, 80 ff., 88 ff., 95 ff.)
• how and to what extent formal structures, procedures and rules contribute to the
solution of these systems problems, and
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• whether and to what extent there are functionally equivalent alternatives to formal
systems structures, procedures and rules.
In modifying Parson’s typology of social systems functions (Scott/Davis 2007, 77)
systems functions to be met when resolving the aforementioned systems problems are
summarized in Table 1.
Table 1: Systems Problems and Systems Functions
Problems Functions
Carrying out organizational tasks effectively Achievement of organizational objectives
Resolving internal and external conflicts Integration
Allocating scarce resources Resource efficiency
Coping with information deficits Reduction of complexity and uncertainty
Handling environmental demands Adaptation
Structural-functional systems theory assumes that social systems seek to survive and
to meet the systems functions listed in Table 1. Thus, the intentions of systems members to
resolve said systems problems are factors that help explain systems interactions.
2.3 Explaining the Recycling Agreement
2.3.1 Informal characteristics
The recycling agreement displays the characteristics of informality mentioned sub
2.2.1.2. The agreement is no contract but a legally unbinding understanding. The
Environment Ministry and the associations of beverage and container producers did not want
to enter legal obligations but sought to keep their options open for the future.
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The agreement reflects an exchange pattern. The associations promised to maintain
the multi-cycling systems for refillable beverage containers. In return, the ministry refrained
from regulations for the time being.
Functionally, the agreement represented an alternative option to regulations under the
Federal Waste Management Act.
2.3.2 Factors triggering the conclusion of the agreement
Which factors triggered the conclusion of the agreement?
One set of factors which led to the conclusion of the agreement were the individual
interests of the parties concerned. The ministry wanted to stabilize the multi-cycling system
for refillable beverage containers but met with political opposition to regulate the system.
Thus, concluding the agreement was a convenient way out of the political impass. Similarly,
the beverage and container industries wanted to preserve their economic flexibility and to
avoid strict regulations. Therefore, they sought an agreement with the ministry.
Furthermore, there is an unwritten informal principle or paradigm influencing
government-industry relations in Germany. This paradigm is called the “ensuring state”
which suggests that socio-political problems should be primarily resolved by self-regulations
of private actors. The government takes the role of a moderator and refrains from direct
interventions whenever possible. However, when self-regulations fail government has to
intervene and “ensure” that public interests are met. The recycling agreement was in line with
the paradigm of the ensuring state.
Finally, the recycling agreement was a way to cope with information deficits and with
scarce personnel and administrative resources. The ministry did not have all the necessary
information to design effective regulations, and to assess all their possible impacts on the
environment, the job market, the development of prices for beverages etc. Most of this
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information was controlled by the beverage and container industries, and withheld in order to
prevent regulations. Thus, the agreement helped to overcome regulatory information deficits,
and to reduce complexity.
Likewise, a consensus-oriented approach helped to minimize resource scarcity.
Passing formal regulations would have required more personnel and administrative resources
from all parties than concluding an agreement.
2.3.3 Factors causing the failure of the agreement
Why did the recycling agreement fail?
The agreement did not meet several systems functions.
First, there were too many actors involved to effectively carry out the agreement to
control its implementation.
Second, the interests of large, medium and small companies from the beverage and
container industries were too divergent, and could not be integrated by the agreement.
Last but not least the technological and economic development of the beverage and
container industries ran contrary to the maintenance of the multi-cycling system. Non-
refillable beverage containers were more profitable for large market leaders than multi-
cycling systems of refillable containers. In sum, the failure to meet basic systems functions
caused the collapse of the recycling agreement.
2.3.4 Conclusions
Non-contractual relations in the form of informal agreements can serve as functional
equivalence to formal regulations. Factors determining the outcome of these agreements
include
• the interests of public and private actors,
• informal norms influencing the relationship between government and private actors,
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• the capacity of agreements to meet systems functions like the achievement of
organizational objectives, integration, resource efficiency, reduction of complexity,
and adaptation to a rapidly changing environment.
3. Informal Governance in Russia
3.1 Agreements of the governor of Kemerovo Region with industries on
social-economic partnership and with federal agencies on administrative
cooperation
3.1.1 Decision background
In Soviet time, huge coal fields in the Siberian Kemerovo region were developed by
Soviet state companies. Around each developed coal field a town was built, where the
workers lived with their families. The companies were the only employers in town, and the
whole social infrastructure of the towns was run by these companies.
In the 1990s, there was the first wave of privatization. The new private company
owners pursued the politics of quick self-enrichment and largely ignored the rights of the
workers (Urban 2010, 28). Several strikes of coal mining workers took place, giving the
region the image of a permanently striking region in the 1990s.
Since 1997, Aman Tuleev has been the governor of the Kemerovo region. His
political goal was to achieve a socio-political balance in the region, since the situation
remained highly critical. The governor set certain rules for the competing companies which
were willing to enter the regional coal and metallurgy markets. The most important informal
rules for companies were to introduce industrial social policies and to co-finance regional
social programs (Urban 2010, 31). Only those companies which were willing to collaborate
with the government were allowed by the governor to obtain regional assets during the
privatization process. In 2003, the privatization process was terminated. All new companies
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which had gained stock shares of the coal companies had to comply with the governor’s
politics of co-providing social services in the region (Urban 2010, 31; Olejnik 2010).
For achieving his formal economic and social tasks the governor needed large funds
given the magnitude of the tasks. The regional taxes (asset tax, gambling tax) were not
sufficient. The governor had no right to raise additional taxes.
The scarcity of financial resources led the regional administration of Kemerovo
Oblast’ to invent new forms of revenues, called “quasi-fiscal agreements” or “organized
sponsoring” (Kurbatova/Levin 2010, 34; Sokolova 2007, 53). Since the late 1990s, the
governor began to sign agreements on “social-economic partnerships” with all industries of
natural resources (coal, metallurgy and chemical companies) which operated in the region.
On July 15, 2004, the governor reached a multilateral agreement “On common
activities regarding the solution of social tasks and enhancement of the citizen’s wealth”
(Agreement 2004)2 with the directors of nine coal companies operating in the region, and
with the industry association “Siberian Business Council” which later on became a coal
company, too. Additionally, the nine party companies signed a “Joint statement on the
support of the governor’s initiative on improving the responsibility of the state and of the
business for the political and economical stability in the region” (Statement 2004).
In addition to that, there is some evidence pointing to a parallel tacit agreement that
the governor reached with the most influential federal agencies like the Federal Service for
Ecological, Technological and Nuclear Supervision (Rostekhnadzor),3 the Federal Tax
Agency, and the Federal Labor Inspection. Especially the first agency is very powerful, since
it not only can revoke the licenses and permits but also close a mine without court judgment.
2 The text of the agreement is available on the website of the regional journal „Delovoj Kuzbass“ (“Business Kuzbass”, 8 August 2004) (Agreement 2004), http://www.delkuz.ru/html/200408/02dokumenty.shtml (access on 05-26-2011). 3 The Federal Service for Ecological, Technological and Nuclear Supervision (Rostekhnadzor) in its today’s organization form was established on 20 May 2004. Its predecessor agency was the Federal Mining and Industrial Supervision Authority (Gosgortekhnadzor), established in 1992.
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There is a provision in the statutory order of the Rostekhnadzor, which says that the
newly created agency fulfill his tasks “in a collaboration” with other federal agencies as well
as with regional and local administrations.
3.1.2 Actors
Figure 2 shows the actors involved in the two parallel agreements.
In the centre, as the focal organization, there is the governor of the Kemerovo Region
with his administration.
Figure 2: Informal Governance Structure in the Kemerovo Region
The nine companies and the industry association belong to the coal industry.4 The
companies benefitted from the boom on the world coal markets. They were interested in
paying low wages (cf. Kurbatova et al. 2009), and used to ignore occupational safety rules to
minimize costs.
4 The companies are: “Jerunakovskaja Coal Company” LLC, “Coal company ‘Kuzbassrazresugol’” OJSC, “Severstal’-Resurs” OJSC, “Belon” OJSC, “Steel Group Mečel” OJSC/”Južnyj Kuzbass” OJSC, “Raspadskaja Coal Company” Closed JSC, “United Coal Company “Južkuzbassugol’” OJSC, “Holding Sibuglemet” LLC, “SUÈK” OJSC, and industry association “Siberian Business Council” (Agreement 2004).
Agreement 1
Company 1
Company 2
Company n
Governor
(Head of the regional
administration)
Federal
level
Regional
level
Federal Service for Ecological,
Technological and Nuclear Supervision
Federal Labor Inspection
Federal Tax Agency
Agreement 2
Industry
association
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The federal authorities control whether the companies comply with environmental,
safety, labor and tax regulations. They grant permits and can shut down companies in case of
non-compliance.
3.1.3 Content
a) Content of the agreement on social-economic partnership (Agreement 1)
The agreement comprised three main issues:
• social guarantees for the employees,
• the enhancement of occupational safety,
• co-financing social programs in the region.
High priority was given to combating poverty, which was considered the main factor
leading to social conflicts in the region. Therefore companies promised
• to keep the minimum wage of the workers not lower than the subsistence average in
the region, and to enhance the wages in case of high profits,
• to provide the workers and the retirees with additional social guarantees like payment
of medical insurance, of medical rehabilitation therapies etc.,
• to improve occupational safety and to upgrade the technology of plants,
• to collaborate with the governor in developing and realizing social programs, for
example, to provide the poorest citizens with free heating coal.
The governor promised
• to support companies in acquiring areas for the construction of social infrastructure
buildings (kindergartens, schools, hospitals, sports and culture halls, homes for elderly
and handicapped persons etc., and housing),
• to support investments policies of the companies,
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• to collaborate with the companies in developing and realizing social programs,
• to represent the economic interests of the companies at the federal level (Fridman
2008),
• to help to find foreign investors representing companies’ interests abroad (ibid).
The written content of the agreement was supplemented by an unwritten
understanding between the parties that the companies paid extra-fiscal dues to regional and
municipal budgets (Kurbatova/Levin 2010, 34).
In return, the regional administration offered:
• to create a business friendly environment, which means simplifying administrative
regulations and procedures, such as registration and licensing procedures,
• to provide privileged invitation for tenders,
• to “protect” companies from being excessively controlled by federal agencies.
b) Content of the agreement between the governor and the federal agencies
(Agreement 2)
Empirical studies conducted in Kemerovo region (Kurbatova/Levin 2010; Sokolova
2007; Urban 2010) as well as mass media reports (Olejnik 2010) suggest that the agreement
between the governor and regional industries was accompanied by a parallel tacit agreement
between the governor and federal agencies.
The governor promised
• to inform federal authorities on companies violating the law and technical norms,
• to provide the regional subsidiaries of federal authorities with office rooms and flats
at a low rent or even rent-free,
• to collaborate with federal authorities in general terms.
In return, the federal agencies promised
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• to refrain from extensive controls over the companies which are under “protection” of
the governor,
• to enhance control activities over the companies as requested by the governor.
Since federal agencies face huge financial, personnel and information deficits, such
collaboration with the governor was very advantageous for them to fulfill their formal tasks.
3.1.4 Form
The agreement on social-economic partnership and the joint statement of the business
were written documents which all eleven parties had signed. The texts were published in a
journal (as mentioned above). The agreement consisted of 15 articles. It contained provisions
about the tenure of the agreement (till January 1, 2007), as well as the conditions for
modifying, terminating and extension.
The agreement between the governor and federal agencies was based on verbal
communications.
3.1.5 Results
Companies kept their promises by and large.
In 2006, the Kemerovo region was among the five Russian regions with a high living
standard (Drugich 2007). The regional social security system is considered to be one of the
best in Russia (Tuleev 2008, 198). As the governor emphasized in an interview, the
companies in the region are developing as “socially oriented companies” (ibid; Urban 2010,
33). With respect to occupational safety there were mixed results. Some companies invested
in modern technologies, some did not. Occupational safety still remains a problem.
The governor kept his promises, too.
The promises about the administrative cooperation between the governor and the
federal authorities were also kept by both parties.
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In sum, the agreements were effective.
3.2 Explaining the Kemerovo Agreements
3.2.1 Informal characteristics
The two agreements reflect the characteristics of informality outlined above sub
2.2.1.2. It is not clear, if the agreement on social-economic partnership is legally binding or
not. Kurbatova/Levin (2010, 38) call it “informal state requirements on business”. They note
that financial requirements on private companies cannot be done through legal acts (ibid, 30).
Urban (2010, 31) argues that socio-economic agreements were informal agreements because
they lack a legal basis.
In the text of agreement, there is a provision on the agreement being “legally valid”
equally for all parties (Article 15). A legal validity of a document does not necessarily entail
legal consequences. The agreement does not contain any provisions about legal sanctions in
the case of breach, and does not require a dispute settlement via courts.5 Thus, its
effectiveness is not based on legal force but on the socio-political sanctions which are at the
disposal of the governor and industries.
The agreement reflects an exchange pattern. Theoretically, the content of the
agreement could have been enacted through regional legislation. Since formal legislation
carried high political, administrative, and legal risks with an uncertain outcome, the
agreement represented a pragmatic alternative for the governor and industries to formal
legislation.
The tacit agreement between the governor and federal agencies also displays informal
characteristics. It is formless and legally non-binding, and reflects an exchange pattern.
5 Cf. Farrell//Héritier (2005, 277) consider “informal institutions … as rules of behaviour not subject to third party dispute resolution”, and “formal rules … as written rules of behaviour subject to third-party dispute resolution”.
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Theoretically, its content could have been subject to a formal administrative agreement
specifying forms of cooperation between the governor and federal agencies. However, a
formal agreement carried political and legal risks. Thus, the tacit understanding between the
governor and federal agencies represents a convenient alternative.
3.2.2 Agreement on social-economic partnership
3.2.2.1 Interests.
The governor was interested in achieving a socio-political balance in the region. He
could not accomplish this with his own resources. Therefore, he had to cooperate with
industries of the region. This cooperation included to support industries in their economic
activities, and to contribute to their economic growth.
Industries were interested in operating in a less bureaucratic climate, in increasing the
safety of their investments, and in achieving a social balance within the companies by
enhancing the living standards of their workers (Kurbatova/Levin 2010, 44). The agreement
with the governor helped them to achieve these objectives.6
3.2.2.2 Providing state plus providing capitalism.
Informal principles or paradigms concerning the relationship between the state and the
private sector are important variables for explaining the conclusion and effectiveness of
informal agreements.
As outlined above (sub 2.3.2), the paradigm of the ensuring state partly explained the
conclusion of the recycling agreement in Germany.
In Russia, a paradigm of the state and private sector prevails which we call “providing
state plus providing capitalism”. This paradigm is rooted in the traditional perception of
6 Cf. Pëtr Chaspekov’s (director general of the coal company “SUÈK” OJSC) comments on Statement 2004 in “Delovoj Kuzbass”, 8 August 2004 (Statement 2004).
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Soviet times that the state and the state-owned economy have to take care of all the economic
and social needs of the Soviet citizen.
The concept of the providing state as it is applied to Western-type market economies
(Thatcher 2007; Bohne 2010) holds that the state is responsible to provide the citizens with
basic services like the delivery of energy, the disposal of wastes and other so-called public
service obligations which are exempted from market competition. Thus, the providing state
has to deliver basic services and not only to ensure them like the ensuring state. The economy
is based on market principles but partly subject to dirigiste state interventions. For example,
the French system reflects the characteristics of the providing state.
Looking at the Kemerovo agreement with industries it is fair to say that the governor
follows the paradigm of the providing state by actively seeking to improve the living
conditions of the population through state intervention. However, unlike in a Western-type
market economy, there is the general belief that industries should also be held responsible to
improve the living standards of the people through direct transfers like providing housing,
infrastructures and social services (Vasil’eva et al. 2011, 188 f.). Companies themselves
consider such practices as necessary and legitimate (Kurbatova/Levin 2010, 33). This is why
the governor could successfully demand special economic and social services as well as
extra-payments from industries. It is our interpretation that the traditional attitude of Soviet
times concerning the responsibility of the state-owned economy toward the people continues
to prevail even under the auspices of capitalism. Capitalist economies are held responsible –
contrary to market philosophy – to directly provide the people with economic and social
services. This is why we call this paradigm the “providing state plus providing capitalism”.
We believe that this paradigm largely accounts for the conclusion and effectiveness of the
Kemerovo agreement.
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3.2.2.3 Systems functions.
a) Integration
As mentioned above, there were a range of social, political and economic conflicts
during the first transition decade in the Kemerovo region. In particular, widespread poverty
caused social unrest. The agreement on social-economic partnership was designed and
intended to resolve these conflicts.
Companies, too, considered the agreement an instrument of internal conflict
resolution, since they were confronted with a range of internal conflicts between workers and
the management.7
In sum, the Kemerovo agreement on social-economic partnership served the function
of systems integration.
b) Adaptation
During Soviet time all citizens were equally and totally provided by the Soviet state
with social services for free (education, medical care, retirement rent, infrastructure etc.). All
citizens had by and large equal living conditions. After the collapse of the Soviet Union, the
living and working conditions deteriorated dramatically. Many lost their jobs and became
poor. The delivery of state services declined, as the state went bankrupt (Tuleev 2008, 197).
Through the agreement, the governor sought to resolve the problem of declined living and
working conditions in the region (Kurbatova/Levin 2010, 33). Thus, the agreement fulfilled
the systems function of adaptation to a drastically changed environment.
c) Resource efficiency
Regional revenues could not cover all the costs incurred by the governor in meeting
his responsibilities. As the budget transfers from the federal government to the region remain
7 Cf. Pëtr Chaspekov’s (director general of the coal company “SUÈK” OJSC) comments on Statement 2004 in “Delovoj Kuzbass”, 8 August 2004 (Statement 2004).
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remarkably small, and the citizens had no own savings, the governor invented new sources of
income to fulfill his social tasks. Thus, he resolved the systemic need of allocating scarce
resources by using companies’ resources. This strategy reflects the systems function of
resource efficiency.
3.2.3 Agreement on administrative cooperation
The explanation of the tacit agreement between the governor and the federal agencies
is particularly challenging, since there is no published text of it and there are no explicit
publications on this issue. Certainly, further empirical research is needed to elaborate on
informal cooperation patterns between federal agencies and regional administrations.
Lapina (2006) points to the intransparency of intergovernmental relations in Russia
where “informal personalized agreements” between governors and federal agencies’ heads
are the dominant mode of collaboration.
Some evidence on the agreement between the governor and the federal authorities
results from the companies’ statements which were interviewed in Kemerovo region as well
as from news paper reports (Kurbatova/Levin 2010; Olejnik 2010).
3.2.3.1 Interests.
The governor had an interest to protect regional companies from being extensively
controlled by federal authorities. Industries often complained of repeated control activities
and huge fines by federal control agencies. Companies, therefore, preferred to pay social
programs at the request of the governor which could protect them from costly federal controls
(Kurbatova/Levin 2010, 43 f.).
On the other hand, the governor used the federal agencies’ control capacities as an
indirect pressure on non-compliant companies, persuading them to make payments as
promised.
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The federal authorities were interested in improving the effectiveness of enforcement
measures. They needed information on companies provided by the governor.
Finally, the federal authorities were much interested in additional revenues, as they
were not sufficiently paid by the federal government. The governor could share the extra-
fiscal funds with the federal agencies (cf. Kurbatova/Levin 2010, 44) or grant other financial
support.
3.2.3.2 Systems functions.
a) Reduction of complexity and uncertainty
All federal agencies need exact information about companies’ behavior to fulfill their
formal tasks. They suffer from information deficits concerning the companies’ compliance
with regulations. The governor is “closer” to the companies and can provide the necessary
information. Thus, the cooperation agreement helped to reduce the complexity and
uncertainty of federal control activities.
b) Resource efficiency
Due to the agreement, federal authorities improved their financial situation which was
in a bad state.
The governor, as he lacked direct enforcement capacity, used the federal authorities’
power as an indirect instrument to make companies pay extra-fiscal funds. Consequently, the
agreement met the systems function of resource efficiency.
3.2.4 Conclusions
The effectiveness of the Kemerovo agreements can be explained by a range of factors:
In the agreement 1, the interests of the actors are interdependent and homogenous. All
parties had an interest in improving the economic and social situation of the region.
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The agreement could only be concluded and be effective because of the underlying
state paradigm (the providing state plus providing capitalism), which goes back to the Soviet
period.
The agreement could resolve some systems problems too, such as integration,
adaptation and resource efficiency.
The agreement 2 was effective because of the insufficient resources of the federal
agencies. Struggling with the information deficits, the federal agencies were ready to
collaborate with the governor.
4. Comparing Informal Governance in Germany and Russia
Informal governance methods are well known and broadly used in both countries.
Their characteristics are the same: Informal strategies are legally non-binding, they display an
exchange pattern, and they represent alternative or complementary options to formal
regulatory or contractual instruments.
Concepts of informal organization theory and structural-functional systems theory
help explain the conclusion and effectiveness of the agreements in both countries.
Informal agreements are a convenient way to accommodate the different interests of
actors which may not be fully realized within a formal organization or systems structure. In
the German recycling case it would have been difficult or impossible to meet the interests of
all actors under formal federal waste regulations. In the Russian case, it is unlikely that the
interests of the governor and regional industries could have been realized through formal
regional legislation. Likewise, the tacit cooperation agreement between the governor and
federal control agencies allowed to satisfy control and financial interests of the federal
authorities while the governor could influence federal control activities and thereby exercise
indirect pressure on regional industries to keep their commitments.
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The convergence of interests of the involved actors explains why the German and
Russian agreements were concluded. However, the diversity of interests among large,
medium and small companies in the German case was greater than the spectrum of interests
in the Russian case. This diversity of interests contributed to the ineffectiveness of the
German recycling agreement.
The capacity of informal agreements to resolve system problems and to meet systems
functions as shown in Table 1 represents a set of factors which are crucial for the conclusion
and effectiveness of these agreements.
The recycling agreement could not resolve all the conflicts between the participants
while the Kemerovo agreements contributed to conflict resolution.
Furthermore, the latter agreements helped adapt the region to drastic economic and
social changes in the environment. In contrast, the German recycling agreement ran contrary
to the technological and economic development toward non-refillable container systems.
Finally, the informal agreements helped in both cases to cope with information
deficits and scarcity of personnel, administrative, and financial resources.
In sum, the Kemerovo agreement met the systems functions of integration, adaptation,
and resource efficiency while the recycling agreement only met the latter function. This, too,
explains why the Kemerovo agreement was successful and the recycling agreement was not.
The greatest difference between the German and Russian cases are the different
informal state paradigms, and the different roles of the state in managing the agreements.
The paradigm of the ensuring state assigns a reserve function to the state. The solution
of economic and social problems is primarily left to the self-regulation by private actors. The
government is not supposed to intervene into the market unless fundamental public interests
are at stake. Consequently, the German government does not have the kind of legal and
political means at its disposal which the governor of Kemerovo region had in pressuring
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industries into the agreement, and in controlling them via agreement with federal authorities.
The role of state in Germany is considerably weaker than in Russia. Moreover, German
industries are not held responsible for providing infrastructures and basic social services.
These are the tasks of the government and private social organizations which both have to be
sufficiently funded through taxes.
Providing capitalism is rooted in Soviet tradition and alien to the German market
economy.
From a normative perspective informal agreements create a number of problems for
the policymaking and regulatory process.
Informal agreements tend to be inherently intransparent. Their integrative, adaptive,
and resource-efficient functionality partly follows from the absence of formal rules and
procedures, the exclusion of the public, and the influence of verbal communications even if
the text of the agreement has been documented. For instance, the content of the recycling
agreement has become known to the public only through press releases and through citations
of internal memos in research reports. The Kemerovo agreement was documented but
accompanied by many verbal communications between the governor and industries. Light has
still to be shed on the cooperation agreement of the governor with federal authorities.
Furthermore, informal agreements are prone to inequitable arrangements. In Germany,
citizens have participatory rights in formal administrative decision procedures. Informal
arrangements are often used by public authorities and interested private actors (e.g. investors)
to circumvent the participatory rights of citizens who may oppose a certain investment
project. In the Kemerovo agreement, too, certain companies were disadvantaged by the
agreement in comparison to other companies.
Intransparency and inequity can lead to corruptive informal arrangements. This is why
informal governance is controversial in Russia (Gel’man 2010; Barsukova 2009, 205 ff.).
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However, one must take into account that informal governance is inevitable in formalized
political systems, and possesses limited systems functionality. In practical terms, corruptive
arrangements have to be eradicated but informal agreements represent useful instruments of
informal governance.
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